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The Future of Monetary Aggregates in Monetary Policy Analysis
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| Venue: | Journal of Monetary Economics |
| Citations: | 110 - 4 self |
BibTeX
@ARTICLE{Nelson_thefuture,
author = {Edward Nelson and Charles Bean and Paul De Grauwe and Charles Goodhart and Peter Ireland and Amit Kara and David Laidler and Stuart Lee and Lavan Mahadeva and Bennett Mccallum and Allan Meltzer and Magdalena Polan and Paul Tucker and Peter},
title = {The Future of Monetary Aggregates in Monetary Policy Analysis},
journal = {Journal of Monetary Economics},
year = {},
pages = {1029--1059}
}
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Abstract
Abstract This paper considers the role of monetary aggregates in modern macroeconomic models of the New Keynesian type. The focus is on possible developments of these models that are suggested by the monetarist literature, and that in addition seem justified empirically. Both the relation between money and inflation, and between money and aggregate demand, are considered. Regarding the first relation, it is argued that both the mean and the dynamics of inflation in present-day models are governed by money growth. This relationship arises from a conventional aggregate-demand channel; claims that an emphasis on the link between monetary aggregates and inflation requires a direct channel connecting money and inflation, are wide of the mark. The relevance of money for aggregate demand, in turn, lies not via real balance effects (or any other justification for money in the IS equation), but on money's ability to serve as a proxy for the various substitution effects of monetary policy that exist when many asset prices matter for aggregate demand. This role for monetary aggregates, which is supported by empirical evidence, enhances the value of money to monetary policy.
